Question 1

The basic trade-off in the investment process is

Accepted Answer

A)  between the anticipated rate of return for a given investment instrument and its degree of risk. 
B)  between understanding the nature of a particular investment and having the opportunity to purchase it. 
C)  between high returns available on single instruments and the diversification of instruments into a portfolio. 
D)  between the desired level of investment and possessing the resources necessary to carry it out. 
E)  None of these are correct. 
A)  between the anticipated rate of return for a given investment instrument and its degree of risk. 
B)  between understanding the nature of a particular investment and having the opportunity to purchase it. 
C)  between high returns available on single instruments and the diversification of instruments into a portfolio. 
D)  between the desired level of investment and possessing the resources necessary to carry it out. 
E)  None of these are correct.

Question 2

The rate of exchange between future consumption and current consumption is the

Accepted Answer

A)  nominal risk-free rate. 
B)  coefficient of investment exchange. 
C)  pure rate of interest. 
D)  consumption/investment paradigm. 
E)  expected rate of return. 
A)  nominal risk-free rate. 
B)  coefficient of investment exchange. 
C)  pure rate of interest. 
D)  consumption/investment paradigm. 
E)  expected rate of return.

Question 3

All of the following are major sources of uncertainty EXCEPT

Accepted Answer

A)  business risk. 
B)  financial risk. 
C)  default risk. 
D)  country risk. 
E)  liquidity risk. 
A)  business risk. 
B)  financial risk. 
C)  default risk. 
D)  country risk. 
E)  liquidity risk.

Question 4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume you bought 100 shares of NewTech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share.
-Refer to Exhibit 1.1. What was your holding period yield?

Accepted Answer

A)  -10% 
B)  -0.8 
C)  25% 
D)  0.8 
E)  -20% 
A)  -10% 
B)  -0.8 
C)  25% 
D)  0.8 
E)  -20%

Question 5

A decrease in the expected real growth in the economy, all other things constant, will cause the security market line to

Accepted Answer

A)  shift up. 
B)  shift down. 
C)  have a steeper slope. 
D)  have a flatter slope. 
E)  remain unchanged. 
A)  shift up. 
B)  shift down. 
C)  have a steeper slope. 
D)  have a flatter slope. 
E)  remain unchanged.

Question 6

The arithmetic mean is a superior measure of the long-term performance because it indicates the compound annual rate of return based on the ending value of the investment versus its beginning value.

Accepted Answer

A) True 
 B)False

Question 7

The ability to sell an asset quickly at a fair price is associated with

Accepted Answer

A)  business risk. 
B)  liquidity risk. 
C)  exchange rate risk. 
D)  financial risk. 
E)  market risk. 
A)  business risk. 
B)  liquidity risk. 
C)  exchange rate risk. 
D)  financial risk. 
E)  market risk.

Question 8

Unsystematic risk refers to risk that is

Accepted Answer

A)  undiversifiable. 
B)  diversifiable. 
C)  due to fundamental risk factors. 
D)  due to market risk. 
E)  unexplainable. 
A)  undiversifiable. 
B)  diversifiable. 
C)  due to fundamental risk factors. 
D)  due to market risk. 
E)  unexplainable.

Question 9

A decrease in the market risk premium, all other things constant, will cause the security market line to

Accepted Answer

A)  shift up. 
B)  shift down. 
C)  have a steeper slope. 
D)  have a flatter slope. 
E)  remain unchanged. 
A)  shift up. 
B)  shift down. 
C)  have a steeper slope. 
D)  have a flatter slope. 
E)  remain unchanged.

Question 10

The ____ the variance of returns, everything else remaining constant, the ____ the dispersion of expectations and the ____ the risk.

Accepted Answer

A)  larger, greater, lower 
B)  larger, smaller, higher 
C)  larger, greater, higher 
D)  smaller, greater, lower 
E)  smaller, greater, greater 
A)  larger, greater, lower 
B)  larger, smaller, higher 
C)  larger, greater, higher 
D)  smaller, greater, lower 
E)  smaller, greater, greater

Question 11

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information:
Nominal return on risk-free asset = 4.5%
Expected return for asset i = 12.75%
Expected return on the market portfolio = 9.25%
-Refer to Exhibit 1.9. Calculate the risk premium for asset i.

Accepted Answer

A)  4.5% 
B)  8.25% 
C)  4.75% 
D)  3.5% 
E)  0% 
A)  4.5% 
B)  8.25% 
C)  4.75% 
D)  3.5% 
E)  0%

Question 12

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You purchased 100 shares of GE common stock on January 1, for $29 a share. A year later you received $1.25 in dividends per share and you sold it for $28 a share.
-Refer to Exhibit 1.7. Calculate your holding period return (HPR) for this investment in GE stock.

Accepted Answer

A)  0.9655 
B)  1.0086 
C)  1.0357 
D)  1.0804 
E)  1.0973 
A)  0.9655 
B)  1.0086 
C)  1.0357 
D)  1.0804 
E)  1.0973

Question 13

Two measures of the risk premium are the standard deviation and the variance.

Accepted Answer

A) True 
 B)False

Question 14

Economists project the long-run real growth rate for the next five years to be 2.5 percent and the average annual rate of inflation over this five-year period to be 3 percent. What is the expected nominal rate of return over the next five years?

Accepted Answer

A)  0.500 percent 
B)  1.056 percent 
C)  2.750 percent 
D)  5.500 percent 
E)  5.575 percent 
A)  0.500 percent 
B)  1.056 percent 
C)  2.750 percent 
D)  5.500 percent 
E)  5.575 percent

Question 15

The variability of operating earnings is associated with

Accepted Answer

A)  business risk. 
B)  liquidity risk. 
C)  exchange rate risk. 
D)  financial risk. 
E)  market risk. 
A)  business risk. 
B)  liquidity risk. 
C)  exchange rate risk. 
D)  financial risk. 
E)  market risk.

Question 16

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

Accepted Answer

A) True 
 B)False

Question 17

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You have concluded that next year the following relationships are possible:
  
-Refer to Exhibit 1.4. Compute the standard deviation of the rate of return for the one-year period.

Accepted Answer

A)  0.65% 
B)  1.45% 
C)  4.0% 
D)  6.25% 
E)  6.4% 
A)  0.65% 
B)  1.45% 
C)  4.0% 
D)  6.25% 
E)  6.4%

Question 18

If a significant change is noted in the yield of a T-bill, the change is most likely attributable to a

Accepted Answer

A)  downturn in the economy. 
B)  static economy. 
C)  change in the expected rate of inflation. 
D)  change in the real rate of interest. 
E)  change in risk aversion. 
A)  downturn in the economy. 
B)  static economy. 
C)  change in the expected rate of inflation. 
D)  change in the real rate of interest. 
E)  change in risk aversion.

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The common stock of XMen Inc. had the following historic prices.
  
-Refer to Exhibit 1.3. What was your arithmetic mean annual yield for the investment in XMen Industries?

Accepted Answer

A)  0.1462 
B)  0.1247 
C)  1.8 
D)  0.40 
E)  0.25 
A)  0.1462 
B)  0.1247 
C)  1.8 
D)  0.40 
E)  0.25

Question 20

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information
Nominal annual return on U.S. government T-bills for year 2018 = 3.5%
Nominal annual return on U.S. government long-term bonds for year 2018 = 4.75%
Nominal annual return on U.S. large-cap stocks for year 2018= 8.75%
Consumer price index January 1, 2018 = 165
Consumer price index December 31, 2018 = 169
-Refer to Exhibit 1.10. Compute the rate of inflation for the year 2018.

Accepted Answer

A)  2.42% 
B)  4.0% 
C)  1.69% 
D)  1.24% 
E)  0% 
A)  2.42% 
B)  4.0% 
C)  1.69% 
D)  1.24% 
E)  0%

The basic trade-off in the investment process is

The rate of exchange between future consumption and current consumption is the

All of the following are major sources of uncertainty EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume you bought 100 shares of NewTech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share. -Refer to Exhibit 1.1. What was your holding period yield?

A decrease in the expected real growth in the economy, all other things constant, will cause the security market line to

The arithmetic mean is a superior measure of the long-term performance because it indicates the compound annual rate of return based on the ending value of the investment versus its beginning value.

The ability to sell an asset quickly at a fair price is associated with

Unsystematic risk refers to risk that is

A decrease in the market risk premium, all other things constant, will cause the security market line to

The the variance of returns, everything else remaining constant, the the dispersion of expectations and the the risk.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following information: Nominal return on risk-free asset = 4.5% Expected return for asset i = 12.75% Expected return on the market portfolio = 9.25% -Refer to Exhibit 1.9. Calculate the risk premium for asset i.

Two measures of the risk premium are the standard deviation and the variance.

Economists project the long-run real growth rate for the next five years to be 2.5 percent and the average annual rate of inflation over this five-year period to be 3 percent. What is the expected nominal rate of return over the next five years?

The variability of operating earnings is associated with

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You have concluded that next year the following relationships are possible: -Refer to Exhibit 1.4. Compute the standard deviation of the rate of return for the one-year period.

If a significant change is noted in the yield of a T-bill, the change is most likely attributable to a

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The common stock of XMen Inc. had the following historic prices. -Refer to Exhibit 1.3. What was your arithmetic mean annual yield for the investment in XMen Industries?

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 1: The Investment Setting

The basic trade-off in the investment process is

The rate of exchange between future consumption and current consumption is the

All of the following are major sources of uncertainty EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume you bought 100 shares of NewTech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share. -Refer to Exhibit 1.1. What was your holding period yield?

A decrease in the expected real growth in the economy, all other things constant, will cause the security market line to

The arithmetic mean is a superior measure of the long-term performance because it indicates the compound annual rate of return based on the ending value of the investment versus its beginning value.

The ability to sell an asset quickly at a fair price is associated with

Unsystematic risk refers to risk that is

A decrease in the market risk premium, all other things constant, will cause the security market line to

The ____ the variance of returns, everything else remaining constant, the ____ the dispersion of expectations and the ____ the risk.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following information: Nominal return on risk-free asset = 4.5% Expected return for asset i = 12.75% Expected return on the market portfolio = 9.25% -Refer to Exhibit 1.9. Calculate the risk premium for asset i.

Two measures of the risk premium are the standard deviation and the variance.

Economists project the long-run real growth rate for the next five years to be 2.5 percent and the average annual rate of inflation over this five-year period to be 3 percent. What is the expected nominal rate of return over the next five years?

The variability of operating earnings is associated with

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You have concluded that next year the following relationships are possible: -Refer to Exhibit 1.4. Compute the standard deviation of the rate of return for the one-year period.

If a significant change is noted in the yield of a T-bill, the change is most likely attributable to a

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The common stock of XMen Inc. had the following historic prices. -Refer to Exhibit 1.3. What was your arithmetic mean annual yield for the investment in XMen Industries?

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

The the variance of returns, everything else remaining constant, the the dispersion of expectations and the the risk.